If you’ve scanned the business news recently, there’s no doubt you’ve heard reports of turmoil in the mortgage markets, along with lectures from a string of experts lining up to say “I told you so” to people who stretched themselves a bit too far to buy a home. But if you’re knee-deep in housing debt, Professor 20/20’s hindsight is of little benefit to you now. What you need is foresight, because foreclosure isn’t necessarily inevitable, especially if you catch your problem early and get help. The best news is you don’t need a crystal ball to know you may be headed toward foreclosure. Just lose the rose-colored glasses and take a good hard look at your finances. Here are seven foreclosure warning signs:
1. You’re dipping into your savings to pay basic bills
Don’t be nearsighted! You can’t go on like this forever. Savings should be reserved for unexpected expenses, not monthly bills – like your mortgage.
2. You’re charging purchases that should be paid in cash
Or, you’ve maxed out your credit card and find yourself applying for more credit. You don’t need a telescope to know you’re taking on too much bad debt, hindering your ability to pay off your good debt – like your mortgage, which helps you build up equity in an appreciating asset such as your home.
3. You’re living on the edge
If a small reduction in your paycheck or an unexpected expense would render you unable to pay your bills (such as your mortgage), you should be concerned. Take a magnifying glass to your budget and find ways to cut your expenses now - before the unexpected happens.
4. Your ARM is about to reset – and you won’t be able to handle the new payments
If you’re paying attention to your mortgage, you can see this one coming a mile away. If you have an adjustable rate mortgage that had a low “teaser” rates for the first few years, make sure you’re prepared for the rate reset – and the jump in your monthly payment that may come along with it. Or, get to work now on finding a better deal by refinancing.
5. You have a non-traditional loan and are having trouble keeping up
Option loans that allow a borrower to make monthly payments that are even less than the interest owed can be great financing tools for some homebuyers. But they can also leave you with more debt than you started with. Learn more about option ARMs here.
6. Home values in your neighborhood are falling
Put on your binoculars! If home values are falling in your neighborhood, you could end up owing more on your mortgage than your house is worth on the market when you go to sell your house.
7. You’re late in making your mortgage payments
If you’re at this point, you should see a great big flashing light telling you to take action now. Talk to your lender about working with you to get back on track.
Be on the lookout for foreclosure “rescue” scams. Before using any credit counseling agency, check with the Better Business Bureau (www.bbb.org). Or, talk to your lender yourself about restructuring your mortgage loan.